[nirvana]

Dear OP:

You always say the team is important. I couldn't agree with you more.

The Team is important not only in the startup, but also in the group of people that make up your investors. Thus, given that we've decided your team is not strong enough to be investors in our company we're going to pass.

In the future, it might be wise to hire partners who are not biased based on age, or prone to making decisions based on irrational conjecture (such as a presenter in an important meeting being nervous.) Also, be aware that one of the signs that a VC firm is not going to be a reliable partner is a pattern of cargo-cult investing. Just because Instagram just got sold for $1B does not mean you should be investing in every social-mobile-location-picture sharing startup (not run by anyone over 50, of course!) The best opportunities, by definition, are the ones with a novel approach.

Thank you for your time, and if you should have a major turnover in partners, feel free to contact us again in the future.

Signed-

Startup Founder

[jayliew]

This response just proves the OP's point. Give him credit for opening up, instead of this response (which is not constructive), and comes off as an attack back at him.

For VCs to make money, they need to have as many founders like them, so they lie .. exactly because of responses like this. It does the VCs more harm to be honest with what they think[1], because it pisses off the founders.

[1] Sure they could be wrong about you (by passing on you), but nobody claims to be perfect. If you're just unable to accept rejection, then well, there's your first problem.

[notJim]

The most-analogous situation I've been with this is in hiring, and if one of my coworkers gave age or "fidgeting in chair" as a reason not to hire, I would call them out on it. I'm sorry, but that's simply not a valid measure of competence.

If these are the reasons VCs choose not to invest in companies, then the reason VCs lie is because their reasoning is bullshit, and they don't want to get called out on it.

[dsrguru]

While VCs may very well misjudge prospective startups far too often, choosing not to invest in a company because you have a negative impression of the founders is not a bullshit reason for passing. Reading people is a very important skill, part of which is subconcious and, therefore, very difficult to explain to others. It's such an important skill that one-on-one interviews are often still done in person, even though the telephone has been around for over 130 years.

[jayliew]

reminds me of this article by pg .. about being "hard to talk to" http://www.paulgraham.com/word.html

[jayliew]

1. The value/measure of a VC to their bosses (their LP / investors) are whether or not they provide a good return. Period. Their bosses do not incentivize them based on great interviewing skills. There is nothing to be "called out" for here. They could have the crappiest interviewing skills, as long as they make their investors money. This is not a contest on meritocracy, or skill, as it pertains to interviewing.

2. I'm sorry, but your response isn't even relevant to my response. I wasn't commenting on the VCs interviewing skills at all. I was commenting on nirvana's response.

3. This is the real world. In a perfect world, every candidate would be interviewed by the world's best interviewer that can see past all our weakness and only see all your strength (interviewees would want that, no?) Unfortunately, you work with what you have - not with what you wish you had.

Cheers.

[notJim]

1. Essentially, you are correct here, in that being biased against seemingly irrelevant details seems to work just fine for VCs. That being said, a) these biases may be preventing them from making optimal decisions (instead, they're making good enough decisions.) and b), I hold my peers to a certain standard of ethics like not discriminating against people. I suspect that VCs do too.

2. You said we should give credit for the OP giving feedback, and that VCs lie because they don't like getting snarky responses. I am arguing that a) this response is deserving of a response like nirvana's because it reveals that VCs make judgments based on unquestioned biases and irrelevant details, and b) VCs don't give feedback because it would reveal that their processes are biased and based on irrelevant details.

3. Good candidates do not want interviewers who look past all their flaws, and that's not what I was trying to say. Good candidates want relevant feedback. "You're too old to do this job" is not relevant feedback. "You don't understand $x well enough to do this job" is great feedback.

Also, in the real world, there's bias and it sucks, and great candidates/founders will be aware of this, and work to combat it. That doesn't mean I'm going to throw up my hands and give up on trying to eliminate bias.

[1123581321]

Regarding #1. The author of the essay left out that he and the other VCs have learned to identify behavior in the interview that equates to ability, or lack of ability, to make money. For example, the fidgeting he observes in response to a certain question indicates that the founder is less likely to make money because of an unaddressed problem, possibly unaddressable due to the founder's character or way of doing business.

The essay jumps straight from interview behavior to a decision to not fund, leaving the reader to work out what is the assumption. There is simply no other reason the VC would consider such behavior important.

[rexreed]

The reality, as indicated in a recent Kauffman report is that the majority (actually, a super-majority) of venture capital forms perform poorly to the extent that they are not worth the management fees or continued investment. [1]

This would indicate that VCs, on average, make poor judgement on the quality of their investments. The use of arbitrary indicators and qualitative characteristics as a primary decision factor for who they invest in or not would seem to be contributory to their overall poor performance. Perhaps VCs should learn to resist their early (and probably incorrect) assumptions about entrepreneurs based on age, nervousness, or other factors and instead look to the underlying premise of the business and existing capabilities of the management team. Or at least they should realize that they are not particularly good evaluators of those characteristics, based on their past performance, and factor that in accordingly.

[1] http://www.kauffman.org/newsroom/institutional-limited-partn...

[1123581321]

We don't know the VCs have better indicators available. The mutual fund industry also interviews CEOs but largely invests based on data, and it has the same performance problems even among niche micro-cap funds.

[notJim]

> There is simply no other reason the VC would consider such behavior important.

Unless maybe the VC is in irrational human being who has biases just like everyone else.

Unless they've actually done studies on whether fidgeting is a good indication of company performance, this statement is ludicrous.

[1123581321]

It's not a ludicrous statement. We must assume the VC wants to make money and thinks it is an indicator, just like we assume a plumber wants to fix pipes even if he uses a divination rod to find leaks.

There is a difference between intent to be rational and actually making good decisions, and they don't have to go together.

[lusr]

Surely there is a massive selection bias in this approach?

[rexreed]

I'm not sure I interpret the above post you respond to as an attack.

If I were to overly simplify, the summary of the OP Post is: "We reserve the right to lie, because we feel you can't handle the truth"

And many entrepreneurs respond: "If you can't feel fit to tell me the truth, then we don't have a relationship based on trust. And that means, there is no relationship."

If the OP's opinion is honest and forthright (ironic given that it is asserting a right to lie), then the entrepreneur's response is just as justified in being honest and forthright (we reserve the right to not work with liars).

If the desire to lie on the part of the VC is simply to avoid the pain of dealing with upset enterpreneurs or the potential of burning bridges, then they need to accept that they may offend other entrepreneurs who more value honesty over lying for the sake of avoiding hurt feelings.

[jayliew]

Perhaps this is merely a difference in perception. I re-read nirvana's post I originally responded after reading your perception of it, and it comes off defensive and passive aggressive. In particular:

"Thus, given that we've decided your team is not strong enough to be investors in our company we're going to pass." <-- well if the VC's team is not strong enough to be investors, why were you pitching them for money in the first place? Seems to me like if you'd pitching them, then clearly you thought they were good, because you're trying to get something out of them. Therefore, a "you're not good enough for us anyway" response reminds me of the story of the fox and the sour grapes[1].

Perhaps also a difference in perspective, Josh suggested a solution at the end of the post - so to me, it's not justifying lying as it is merely stating that something is broken, and here are some steps to take a stab at solving the problem.

[1] http://en.wikipedia.org/wiki/The_Fox_and_the_Grapes

[taskstrike]

Unfortunately, the market dynamic is that there are lot more startups looking for funding that VCs looking for startups to fund.

The reverse rejection does not work in this case.

[rexreed]

The general rule is that if you are looking for venture capital, rather than the other way around, you're either not going to get very far or get a good deal. In other words, it's better to be wanted than to want. And that is the fundamental truth of every market, including the ones of venture capital and personal relationships.

In those scenarios where a startup is being pursued rather than pursuing, I doubt VCs will spend as much time lying as they will trying to make themselves the darling to partner with. If you keep in mind that VCs are situational liars, then you can separate the mercenary deal-chasers from the real value-added partners. That is, the ones that treasure openness and honesty are to be favored over those that lie out of convenience or cowardliness (and freely admit to doing so).

[jessedhillon]

You couldn't have given a better example of a defensive, immature response that discourages actual dialogue. It's also a little pathetic, in a "sour grapes" sort of way. If you had the ability to turn down VCs for these reasons, you wouldn't be facing this kind of rejection.

[sk55]

Though your statement may be "true", you're missing the power play in the situation. Startups ask VCs for money. Send a letter out like this, and you're not getting money from them. The point isn't to be right, it's to get money and if as a founder you go against that goal, I would consider it irresponsible (unless you think strongly that this specific VC is damaging to your company...but then just choose not to take money from them instead of sending a rude letter).

If it was the other way around, you have tons of traction and investors are waiting out the door to invest then you might be able to say that. But in the end, I feel like it still does no good.

[TheSOB88]

Right, because every startup is Worth It (TM l'Oreal). :P

Of course, you're also right - I don't think this guy is a very effective VC at this point. Some of his points seemed completely disconnected. But a person hand-waving or getting nervous on an important topic is a great flag to look for, don't you think?

[seigenblues]

No, it isn't.

I was writing a long post about how we think we're really good at detecting "important signals" like if someone's lying, but that we're actually terrible at it. But the new yorker article that was frontpaging yesterday should pretty much explain it, even though Jonah Lehrer is a bit smug for my tastes ;)

TL;DR- the OP sounds like a very shallow-thinking VC who's blissfully unaware of his own biases. It might work out ok for him -- these biases usually work most of the time, and that's why we have them -- but it will probably fail in some very crucial instances where a more thorough, data-driven approach might have worked better. In fact, that may be precisely how the great VC's are differentiated from the merely ok, but that's a different story...

(link: http://www.newyorker.com/online/blogs/frontal-cortex/2012/06...)

[jbreinlinger]

Thanks for the feedback ;)

[seigenblues]

No problem :) I think you're catching enough flak for your over-50 comments below, so I didn't mention that one ;)

BTW, shallow thought wasn't meant as a derogative. It's what we monkeys do best, after all. It'll result in a different profile of swings, hits, & misses than other approaches, that's all.

(also, the irony that the new yorker article also suggests how we're really good at seeing the faults in others thought processes but not in our own is hi-larious)

Best of luck!

[javajosh]

There is a sense of sustained confidence, of inevitability, of capability, that investors must look for in their founders. A person like this is bound to have a history of success, large and small. They can't help it. And none of these qualities are correlated to personality type or financial status. Such people are simply incessant creators. They cannot stop creating. You might try to stop them creating, and they would still find a way to thwart you and create anyway.

My sense is that most wannabe entrepreneurs do not have these qualities. And without these qualities, it will be difficult to succeed even with a world-class idea, or with all the money in the world, or even with great intelligence and capability.

The helpful words from you, then, would be the ones that change the would-be entrepreneur into an incessant creator.

Let us assume that such words exist, and that the supplicant (and I use that word advisedly) implements them. I reckon it would take a year (or possibly less) to demonstrate that a sustained change has occurred, thanks to those words.

The question arises, of course: do such words exist, and if so, what are they?

Note that if you discover these words, then they will be worth, literally, many billions of dollars.

[rexreed]

What I usually say:

Think big. Start small. Iterate often. If you aren't failing, you aren't learning (or trying).

Money from customers beats money from investors. See if you can get that. And if you can't, find another metric for success.

[javajosh]

Personally, I'd go more Zen. We are talking about inspiring deep, abiding, personal change after all.

More often than not we get in our own way. This is not something that you can consciously change, even if you are aware of it. There are several kinds of beliefs, and some of them are ingrained deep-down inside of you. We often make the mistake of thinking that our minds are like machines, which can be constructed in different ways - but minds are more like life - growing, changing, in lots of ways.

So the words must be seeds. It is easy to describe the outcome that you want, but very hard to construct a seed that will get the person there. So difficult, in fact, that it may not exist, or if it does it may take years to grow.

Learn to meditate. Learn to accept reality for what it is, learn to stop fighting reality. Learn to accept yourself and love and laugh and work with a vigor that you've only barely tapped.